Summary The development of improved plant nucleotide‐binding, leucine‐rich repeat (LRR) immune receptors (NLRs) has mostly been based on random mutagenesis or on structural information available for specific receptors complexed with the recognized pathogen effector. Here, we use a targeted mutagenesis approach based on the natural diversity of the Pm3 powdery mildew resistance alleles present in different wheat (Triticum aestivum) genotypes. In order to understand the functional importance of the amino acid polymorphisms between the active immune receptor PM3A and the inactive ancestral variant PM3CS, we exchanged polymorphic regions and residues in the LRR domain of PM3A with the corresponding segments of PM3CS. These novel variants were functionally tested for recognition of the corresponding AVRPM3A2/F2 avirulence protein in Nicotiana benthamiana. We identified polymorphic residues in four regions of PM3A that enhance the immune response, but also residues that reduce it or result in complete loss of function. We found that the identified critical residues in PM3A modify its activation threshold towards different protein variants of AVRPM3A2/F2. PM3A variants with a lowered threshold gave a stronger overall response and gained an extended recognition spectrum. One of these variant proteins with a single amino acid change was stably transformed into wheat, where it conferred race‐specific resistance to mildew. This is a proof of concept that improved PM3A variants with an enlarged recognition spectrum can be engineered based on natural diversity by exchanging single or multiple residues that modulate resistance function. Significance Statement To engineer plant immune receptors with enhanced and broader recognition specificity, it is essential to identify critical residues for receptor function. Here, we show that natural allelic diversity can be used to determine key residues for specific receptor function. We demonstrate their impact on receptor activity, and use these observations to design an improved immune receptor.